China Overtakes U.S. as Largest Market for PCs

First Cars, Now Computers -- Move Underscores China as Important Economy

Published on August 23, 2011.

Lenovo Chairman Liu Chuanzhi

China probably overtook the U.S. as the largest personal-computer market last quarter, after three decades of American dominance in an industry pioneered by Apple and IBM.

Personal-computer shipments in China rose 14% to 18.5 million units during the second quarter, the first time they surpassed the number in the U.S., where they fell 4.8% to 17.7 million, Bryan Ma, an analyst at research firm IDC, said in an interview today. On a full-year basis, China will likely pass the U.S. in 2012, he said.

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The estimates highlight the growing importance of China's consumers to the global economy after the country passed the U.S. in 2009 as the largest auto market. Hewlett-Packard, the world's largest PC maker, indicated this month it may pull out of that business, while China's Lenovo Group posted quarterly profit that almost doubled.

"This was going to happen sooner or later, just like with the car market, and the time has come," said Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute Inc. in Tokyo. "China has a huge population and their income is rising."

The value of computer shipments in China in the second quarter was $11.9 billion, compared with $11.7 billion for the U.S., IDC's Ma said. China accounted for 22 % of the global PC market by shipments, a percentage point more than the U.S., he said.

Still, shipments in China will probably end at 72.4 million for the year, about a million shy of those in the U.S., Ma said. Next year, shipments in China will probably rise 18% and surpass the estimated 76.6 million units in the U.S., he said.

HP, a relatively late entrant to the personal-computer market in the early 1990s, vaulted atop the industry with its 2002 acquisition of Compaq Computer Corp. Years before, HP had turned down a proposal by one of its engineers to buy the design for a home computer he invented. The employee was Apple co-founder Steve Wozniak, who turned the idea into the Apple I in the mid 1970s.

Though Apple helped pioneer the market with the Apple I, IBM spread the use of the product category with the release of its first PC in 1981. Lenovo, China's largest computer maker, bought IBM's PC business in 2005.

"Our business continues to climb," Liu Chuanzhi said in the company's Aug. 18 earnings statement. "Our results show that Lenovo's acquisition of the IBM PC business has become a success. In future quarters, you will see clearly that we will take what we've learned from this acquisition and apply that knowledge."

Lenovo is now poised to benefit from both China's rise as the largest PC market, and HP's potential exit from the industry, Henry King, a Hong Kong-based analyst at Goldman Sachs Group, wrote in a report to clients today.

"We think Lenovo's proven execution track record may help it gain more market share outside China without compromising profitability," Mr. King wrote. "We believe it would gain potential market share from HP during the transition period."

Still, an increasing number of consumers in China are following a global trend of opting for Apple's iPad and other tablet computers. Lenovo CEO Yang Yuanqing attributed weaker growth in the nation's PC market to the shift to tablets, he said in February.

Lenovo has started selling new products including smartphones and tablet computers emulating rivals including Apple and Acer in the past year.

The world's market for tablets will exceed 230 million units in 2015, compared with less than 20 million units sold last year, research firm Informa said last month.